Downtown office dance

Big Wells Fargo lease starts a slow rebound for Loop market

In the biggest downtown lease in almost two years, Wells Fargo & Co. is taking 293,000 square feet in a Wacker Drive complex, a sign that a slow, choppy recovery in the high-rise office market is under way.

The banking giant is consolidating operations from five Loop locations into the 10 and 30 S. Wacker Drive building, says Lisa Johnson, who heads commercial banking in Illinois and Wisconsin at Wells Fargo. The bank is moving in stages over several years and ultimately will have about 700 employees in the complex.

The transaction is a signal that big tenants are on the move again in the downtown office market after putting off important real estate decisions in the wake of the recession. Other large companies on the hunt include Aon Corp., GE Capital and Peoples Gas parent Integrys Energy Group Inc.

While San Francisco-based Wells Fargo is expanding, most big tenants in the market are looking to reduce their space because staffing isn't expected to return to pre-recession levels anytime soon amid slow growth in the local economy. As a result, the downtown vacancy rate is expected to climb to 16.9% from 16% by the end of 2012 despite an expected flurry of big leases, according to a forecast by Chicago-based MB Real Estate.

“It's definitely going to be an uneven recovery,” says Andrew Davidson, an executive vice-president at MB, who represents office tenants. “Tenants are still renegotiating and downsizing.”

Cutting back on space is the result of a decline in downtown private-sector employment, which fell 5.6% between 2007 and 2010, to 274,956 jobs, according to a study commissioned by the Chicago Loop Alliance.

Several pending deals reflect the downsizing trend, including Chicago-based Integrys, which was formed after the 2007 merger of a Wisconsin utility with Peoples Energy Corp.

Integrys is in talks to lease 120,000 to 150,000 square feet at Aon Center, overlooking Millennium Park, a spokeswoman confirms. The company currently leases 196,000 square feet next door at 1 Prudential Plaza.

New York-based insurance broker Marsh & McLennan Cos. is poised to move to 540 W. Madison St., where it will lease about 120,000 square feet, real estate industry sources say. The company currently has about 176,000 square feet at 500 W. Monroe St. A Marsh spokesman declines to comment.

GE Capital, meanwhile, is mulling a move from 500 W. Monroe and is in advanced talks to lease roughly 130,000 square feet on the top floors of 23-story 101 N. Wacker Drive, sources say. The finance arm of Fairfield, Conn.-based General Electric Co. currently leases 308,000 square feet on Monroe, although much of that space is not occupied. A spokesman says the company is considering several options, including staying.

Aon, located in its namesake tower at 200 E. Randolph St., is testing the market.

Yet some landlords see reasons for optimism, citing in part the continued migration of suburban companies downtown.

“I think we've seen the bottom, and we stand to see strong improvement over the next couple years,” says Donald Miller, CEO of Norcross, Ga.-based Piedmont Office Realty Trust, which owns Aon Center and recently took over ownership of 500 W. Monroe.

“Given the lack of new development, the growth we expect to see in the economy and the limited amount of big blocks of space available, that will force up rents to some degree,” says Mr. Miller, who declines to comment on specific tenants.

A spokesman for New York-based Tishman Speyer Properties L.P., which owns 10 and 30 S. Wacker, declines to comment on the 17-year Wells Fargo deal. The transaction is the biggest new downtown lease since 2009, when the parent of United Airlines leased 450,000 square feet at Willis Tower, 233 S. Wacker Drive, to relocate from northwest suburban Elk Grove Village.

Wells Fargo is looking to bolster its profile in Chicago and plans to put a stagecoach, its well-known logo, in the lobby of the complex, called the Chicago Mercantile Exchange Center.

But Ms. Johnson, a 25-year veteran of the bank, says she found the downtown office market a little tighter than she expected.

“I had the presumption that there would be lots and lots of buildings with this kind of space available,” she says.